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Centrally Planned Economies And Free Market Economies Economics Essay

Free markets are the economic systems in which individuals, rather than government, make the majority of decisions regarding economic activities and transactions. Free market economy is an economy where all markets; it is not controlled by parties other than the players on the market. In its purest form, the government plays a neutral role in the government and the law on economic activity is not limited and do not actively promote (such as industry regulators do not allow its own economic interests and provide help companies more reason to protect them from market pressures, internal / external). As an economy under the most extreme form of it does not exist in developed economies, however, efforts to liberalize the economy or make it “free-er” paper tries to limit the role of government manner.
The theory that a good free market, the property is voluntarily exchanged at a price fixed by mutual consent of sellers and buyers. By definition, buyers and sellers do not coerce each other, in the sense that they own the other without the use of force, threat of physical force, or fraud, and they don ‘ were not constrained by a third party (such as government transfer payments) and their participation in trade simply because they accept and believe in what they get is better than or as much as what they give to above. The price is the result of a solid buying decision as described by the theory of supply and demand.
Unlike the free market strong market controlled or market regulation, government, directly or indirectly regulate prices or supplies, which are theoretically free market caused the market is less efficient. Where there is government intervention, the market is a mixed economy.
Market the price of a good service to the consumer demand for producers to communicate and thus to guide the allocation of resources for consumers and investors, satisfaction. In a free market, prices are the result of a series of voluntary transactions, rather than political decree as in a controlled market. With free competition between suppliers that provide products and services, prices tend to decline, and quality tends to increase. A free market should not be confused with a perfect market where individuals have perfect information and perfect competition.
Free market economy is related to the philosophy of laissez-faire economics, which advocates on conditions in the real world by mostly confining government intervention in economic regulation against force and fraud to market participants. Some advocates of free market and tax, says the market is preferable to provide valuable services, including national defense and law, without exception, these services can be provided without direct taxation and the agreement is the basis of political legitimacy to make a coherent moral system. Anarcho-capitalism, for example, replaces the body of arbitration and the protection of private organizations.
In social philosophy, an economy is a free market system to allocate the assets of the society: purchasing power mediated by supply and demand in the market decides who gets what and what is done instead of State. A free market can refer to refine the national economy or the international reference in particular on the international markets is known as free trade (of goods) or lack of control in the capital (money).
How the Free Market works: In a free market, prices provide the following. Beet farmers if X is a terrible case, but all others had bumper harvests, prices are lower beet. On the other hand, if X is a farmer harvests and all other farmers get their crops being eaten by bugs, thankfully X beet farmers to sell their own at a high price.
If beet farmers with poor crops in District One, beet price is higher due to lack necessary. A beet farmer in District B had a good harvest, more property, enough to supply the needs of A; this offer will flow to higher market prices in District A. Not only that, Turnips will start pouring in from anywhere with a surplus to the County A have enough beets, making the price reduction. Price varies by source.
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Centrally Planned Economy: A planned economy is one in which management and development of the economy of a country is planned and managed by his government. The antithesis of central planning, it is capitalism that is characterized by the private sector to control production, distribution and consumption. Capitalism worked well in satisfying market demand. Central planning, on the other hand, functions through administrative guidelines. While capitalism is often seen as an economic asset rather than a political system, economy plan implies a strong political will and strong links with the socialist government and community production. It is rare, however, for any economic system exists in its purest form. For example, the health care system of the People’s Republic of China, an avowed communist state is in a state of transition. China’s system of universal health care, is based on central planning has largely been disbanded and replaced by health insurance programs vary, many of which are funded by membership dues. Employees of the private sector and independent workers that usually do not include any public and bear the full cost of health care itself.
Central planning has developed in the Soviet Union after the Bolshevik Revolution in 1917. Vladimir Lenin established two economic plans called “War Communism and New Economic Policy. War Communism, which ran 1918-1920, was trying to remove the pre-production, control, and confiscation peasant cultures for distribution. The collapse of Communism War has simultaneously with the establishment of a planning committee called Gosplan. The role of Gosplan, although vague and undefined, not harmony with the new economic policy was created in 1921. Starting in 1925 Gosplan began publishing economic evaluations each year. These predictions will soon be five, who began as estimated not bind the economic activities in the future. This fact, however, changed very little in the first five year plan in 1928 marked the beginning of an economic central planning official the Soviet Union. Five-Year Plan trying to make a balance between demand and production, but was too optimistic and based on projected growth is not realistic. The main purpose of central planning in the United the achievements of Soviet five year plan in which state agencies perform.
Central economic planning as set in the Soviet Union and other communist countries has to depend, obedience and discipline on the part of individual supporters of the state. This choice is limited supply of goods and services and makes decisions about jobs, careers and work options
In communist Poland, for example, the role of trade unions has furthered the goal of production planning commission of the State. Also in this country, wages are not determined by collective bargaining or market demand, which is due to the central government without a plan in consultation with the union. Central planning has failed for several reasons, including inefficient allocation of resources and labor, increasing the transmission of information agents distorted and selfish and down stairs, not valuation related costs, supply and demand and make inefficient administration of the different economic.
Central planning, however, is sometimes ruthlessly efficiency at micro level to channel scarce resources to economic imperative. A typical example of this is a country with an economy of war. Nylon, for example, is essential for production of even during World War II. Because the supply of this fabric was limited, the government planned to requisition all ready for production though nylon. This removes the future supply of all nylon, a product whose sole purpose is cosmetic and therefore entirely without any military value. This example also illustrates an essential characteristic of central planning and dependence of the price mechanism. The fact that a certain amount of nylon can be used to perform thousands of pairs of nylons thousands of dollars in revenue and only one worth even $25 is not related to the central planning agency.
“Savings certificate” is also a feature of the economy under central planning and are caused in part by the production of consumer goods marked by poor quality and lack of choice in cases this. Consumers often resort to overtime, the corruption and black market to meet their needs. Secondary economy provides the mechanisms needed to meet demand beyond frustrating, while the goals of central planning by transferring assets necessary for the so-called “unproductive” use. Black market nylons use the previous example; find ways to satisfy consumer demand, but scarce resources move production out whether the request of the central government by the economy. Planning to determine the bid based on the needs and demands of government applications, which reflected in the asking price, has no effect on the supply line was established by the government.
Analysis of Free Market: It is an economy system where the majority of decisions are taken by the individuals and not by government.
Individuals are free to decide to the things concerning their economy, like employment, capital management, expenditures, resources utilization.
Principles used in free market are based laissez-faire (non-intervention by government) economics.
In this type of economy the government’s job is limited to provide “public goods” and in certain situations, perform a regulatory role and may also include protecting private property, enforcing contracts, and regulating certain economic activities.
Governments generally regulate “natural monopolies” such as utilities or rail service (see Monopoly).
Governments may also restrict economic freedom for the sake of protecting individual rights. Examples include laws that restrict child labor, prohibit toxic emissions, or forbid the sale of unsafe goods.
Proponents of free-market economies believe they provide a number of advantages and see free-market economies as encouraging individual responsibility for decisions and they believe that economic freedom is essential to political freedom.
Free markets provide incentives both to individuals to allocate resources, such as labor and capital, among the most productive uses, and to firms to produce goods and services that the public wants, using the most efficient means of production.
Criticism on Free Market: Opponents believe that a free-market economy cannot ensure basic social values, such as alleviating poverty, or that the income distribution that results from a free-market economy may not be equitable.
A free-market economy may also permit the accumulation of vast wealth and powerful vested interests that could threaten the survival of political freedom.
Analysis of Centrally Planned Economy: In this system the total direction and development of a nation’s economy is planned and administered by its government.
Centrally Planned Economy functions through administrative guidelines.
Central Planning is capitalism which is characterized by private sector control of production, distribution, and consumption.
Central planning is sometimes ruthlessly efficiency at micro level to channel scarce resources to economic imperative.
Central planning has developed in the Soviet Union after the Bolshevik Revolution in 1917.
Central economic planning as set in the Soviet Union and other communist countries has to depend, obedience and discipline on the part of individual supporters of the state. This choice is limited supply of goods and services and makes decisions about jobs, careers and work options.
Central planning has failed for several reasons, including inefficient allocation of resources and labor, increasing the transmission of information agents distorted and selfish and down stairs, not valuation related costs, supply and demand and make inefficient administration of the different economic.
Centrally Planned Economies Vs Free Markets: From the analysis of both the systems of economy, we can observe that while in centrally planned economy the main decision taking body is the government, and in free market, the decision are taken by the individual bodies.
Individuals are free to make economy decisions for them, like expenditures, etc where as in the centrally planned economies the government takes much decisions.
Free markets cannot help in eradicating the poverty from the society, where as the planned economies can do so.
Recommended reading: Basic Economics, Thomas Sowell; Basic Publishing
Economics in One Lesson, Henry Hazlitt; Random House
The Wealth of Nations, Adam Smith; Prometheus Books

Opportunities and threats of the Colombian motorcycle industry

Introduction and Background Colombia in the recent decade has had continued growth after the recession in the late 90’s. Strong growth is seen between 2005 -2007 when the growth rate increased from 5.7% – 7.5% while the inflation rate stayed below 6% (BARRIENTOS 2010). This shows that the Colombian economy is recovering slowly without overheating. Its GNI has significantly increased from $1700 to $8600 in the past 5 years even with the impact of financial crisis in year 2009(Bank 2010) These three factors show the steady economic growth which improves the stability and confidence for investments. In addition, other businesses have increased confidence investing in Colombia. There has been an increase in investment from 15% to 26% of the GDP in 2002 till 2009(Anonymous2009a). The Colombian FDI in year 2010 reached $6.4B in the first 8 months and rose to 19.7%, compared to figures last year. Business Week also published an article on the Colombian economy and titled it “Colombia: the most extreme emerging market on Earth” (Farzad 2007, Alsema 2010). All of these positive indicators show that the Colombian economy will prove to be a favorable environment to start business in. In other words, a stable GDP with low inflation, plus a rapid increase of GNI, will allow a higher demand of luxury motorcycles. This is a critical element because many neighboring countries such as Brazil have not shown economic potential and its recovery averages 2% less GDP growth as compared to Colombia (Anonymous 2009b).
Income In relation to the motorcycle to income earning, a motorcycle is considered as a luxury good with an estimated price of $2150 (Davidson 2010), thus targeting high income earners. Colombia has an unequal distribution of income with a GINI index of 58.5 (Bank 2010). 62.7% of the income belongs to 20% of the population (Development 2008). However, in considering the fact that the population with disposable income higher than $25,000 increased from 6.2% to 11.2%, in unit terms, there are 608,000 Colombians who now have the ability to spend $18,750 on average (Euromonitor 2010) .This signifies a quick growth in disposable income as a result of an increase in the demand of luxury goods. The trend can also be observed by the increase in the constant PPP since early 90’s. In 2010, the value of PPP is $1273.18, 6times of that in 1990(Nations 2010). Colombians are observed to be boosting their living standard allowing them to afford luxury goods such as Eagle Motorcycles. A luxury product requires a continuous growth for its demand to increase. Colombia’s growth in disposable income therefore provides a favorable environment.
Transportation Colombia has a great aviation transportation system, with direct flights to 984 different airports. Additionally, Colombia has 40 regional airports with the major international Airport in Bogotá’s El Dorado handling cargo weight 350 million metric tons annually, 1st for cago capacity and one of the busiest in Latin America(Division 2007). This will allow for the transferring of goods to be reliable and thus helping on the catching up on tight schedules of custom made motorcycles. This is an opportunity because in order to make shipments on the motorcycle, a convenient transportation to deliver around the country is required.
Increased demand In the recent years, there has been a demand boom of motorcycles in the Latin American countries (Corredor 2002). Latin America has the 2nd highest increase in demand of motorcycle, ranking just below the Asia Pacific (Freedonia 2007). The increase in exports from major competitors proves the increase of demand of motorcycles (Francis 2010, Farlex 2007). Two major competitors, Honda and Mitsubishi, had increased their exports to 100,000units to meet the demand of motorcycles (ANONYMOUS. 2010c, Anonymous 2010d). Although it may vary with the actual product, it is an indication of the high demand of motorcycles. Due to the increase in demand, Eagles might be able to gain market share during the boom of demand especially since the target market is only 11.2% of the population.
RISK Competitors As mentioned above, there are several major competitors. Eagles has an average price of $2150, while Honda is launching motorcycles for only $600(Davidson 2010, Hagiwara. 2010) Even though these two products may not be resemblance substitutes, and Honda is the market leader who has 27% market share (Gale 2007), this will be a major risk. If the Honda campaign selling lower-priced motorcycles is successful, the market share of Eagles may be damaged. This low price campaign may be caused by the production of Honda in Brazil, as it has a lower labor cost as compared to US (Worldsalaries 2008, Bureau 2010). Eagles should consider lowering the price and cost to increase their competitiveness.
Trade There is a lack of interest in Colombian peso. It is suggested that they should revalue the currency (STRAITS 2010). Trade with neighbouring countries should be taken into account, particularly since Venezuela had implemented a trade ban on Colombia (Anonymous 2010e). Other neighbors such as Ecuador have no ability to digest excess supplies. Weak demand from neighbouring countries cannot provide a buffer for the occurrence of any incidents. Using the FTA with US as an example, (Defaer 2010, Smith 2008), once the relationship breaks down, there will be a less exports to Colombia and therefore needed to spread it to surrounding areas. With a weak demand from the surrounding, an excess in the amount of stocks would occur.
Unemployment Other than the revaluation of Colombian peso, other economic infrastructure proves to be worrying. Colombia’s unemployment rate has not decreased since year 2006 and reached 12.5% last year with 49% of poverty (Benford 2010 , John 2009) These conditions creates an income gap discontinuing the growth of potential customers. Eagles will require a constant increase in the population entering the upper middle class as new customers. However, if a large unemployed population exists, gaining potential customers will be difficult.
Conclusion Based on the evaluation shown above, Colombia has more favorable terms which should further investigate the suitability to establish Eagles in Colombia.